Like you, I've read that the N8X0 uses a external LCD controller, since the onchip one is limited to 640x480 (I think). And the connection to the external controller is too slow for full framerate, full size video (800x480 @ 30fps).

That said, it's never been a problem for me because the video decompression step is usually the bottleneck in video playback.

In the future, better optimized video decoders may move the bottleneck to the LCD controller. But I wouldn't hold my breath.